Davos: IMF raises Saudi economic growth forecast for 2020

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Christine Lagarde said the IMF is making “a further downward revision” in its global economic forecasts. (WEF)
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Gita Gopinath, IMF chief economist, said an escalation in trade tensions and a possible worsening of financial conditions were two key sources of risk. (WEF)
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Policemen keep watch from a rooftop ahead of inauguration of World Economic Forum (WEF) in Davos. Reuters
Updated 21 January 2019

Davos: IMF raises Saudi economic growth forecast for 2020

  • Global economy faces slower growth and rising risks, fund says
  • Gloomy outlook published ahead of World Economic Forum meeting, which starts Tuesday

DAVOS: The International Monetary Fund (IMF) has raised its growth forecast for Saudi Arabia in 2020 — although said the Kingdom’s economy will expand slower than expected this year.

In its World Economic Outlook update for January, the IMF on Monday raised its growth forecast for the Kingdom to 2.1 percent, up 0.2 percentage points from a previous projection. 

However, the IMF lowered its forecast for this year to just 1.8 percent, down from the 2.4 percent it predicted in October, and is pessimistic about oil prices over the next two years.

The forecasts were part of a gloomy worldwide economic outlook unveiled amid the snowy slopes of Davos, Switzerland, ahead of the World Economic Forum’s Annual Meeting, which starts on Tuesday.

The IMF report, which warned of risk factors ranging from the US-China trade war to Brexit, was shared by Christine Lagarde, managing director of the IMF, and Gita Gopinath, economic counsellor and director of research at the fund.

The fund revised its global growth forecast for 2019 to 3.5 percent, 0.2 percentage points lower than the previous estimate. Growth for 2020 is forecast at 3.6 percent, 0.1 percentage point lower than previously forecast. 

It blamed continuing trade tensions between the US and China, falling international trade and investment, and weakening business confidence for the outlook. The IMF noted that US growth was decelerating, while Chinese growth was at the lowest since 1990.

In Europe, the IMF highlighted the risks from a disorderly Brexit, as well as economic weakness in Germany and Italy.

“While this does not mean we are staring at a major downturn, it is important to take stock of the many rising risks,” said Gopinath.

Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is expected to remain subdued at 2.4 percent in 2019 before recovering to about 3 percent in 2020, the report said. 

Multiple factors weigh on the region’s outlook, including weak oil output growth — which offsets an expected pickup in non-oil activity — as well as tightening financial conditions in Pakistan, US sanctions against Iran, and geopolitical tensions in several countries.

The World Economic Outlook numbers are based on forecasts that oil will not rise above $60 on average over the next two years, significantly more pessimistic than the assessments of many experts and of policymakers in Saudi Arabia.

Gopinath explained that the lower 2019 forecast for Saudi Arabia reflected the decision to reduce oil output at last month’s meeting of the Organization of the Petroleum Exporting Countries. She said that while Saudi fiscal policy is more expansionary in 2019, leading to a pick-up in the non-oil sector, overall the OPEC cuts had a downward impact on the Kingdom’s economy.

The IMF’s Lagarde likened the global economy to a cross-country ski event, in which visibility, stability and cooperation between skiers had been reduced. She added that while there was not currently a risk of a recession, that policymakers had to address the potential vulnerabilities in the global economy and “be ready if a serious slowdown does materialize.”

The IMF said that its outlook “reflects a persistent decline in the growth rate of advanced economies from above-trend levels — occurring more rapidly than previously anticipated — together with a temporary decline in the growth rate for emerging market and developing economies in 2019, reflecting contractions in Argentina and Turkey, as well as the impact of trade actions on China and other Asian economies.”

Gopinath also said that there could be further risk to financial markets. “While financial markets in advanced economies appeared to be decoupled from trade tensions for much of 2018, the two have become intertwined more recently, tightening financial conditions and escalating the risks to global growth,” she wrote in a blog post. 

US trade offensive takes out WTO as global arbiter

Updated 10 December 2019

US trade offensive takes out WTO as global arbiter

  • Two years after starting to block appointments, the US will finally paralyze the WTO’s Appellate Body
  • Two of three members of Appellate Body exit and leave it unable to issue rulings

BRUSSELS: US disruption of the global economic order reaches a major milestone on Tuesday as the World Trade Organization (WTO) loses its ability to intervene in trade wars, threatening the future of the Geneva-based body.
Two years after starting to block appointments, the United States will finally paralyze the WTO’s Appellate Body, which acts as the supreme court for international trade, as two of three members exit and leave it unable to issue rulings.
Major trade disputes, including the US conflict with China and metal tariffs imposed by US President Donald Trump, will not be resolved by the global trade arbiter.
Stephen Vaughn, who served as general counsel to the US Trade Representative during Trump’s first two years, said many disputes would be settled in future by negotiations.
Critics say this means a return to a post-war period of inconsistent settlements, problems the WTO’s creation in 1995 was designed to fix.
The EU ambassador to the WTO told counterparts in Geneva on Monday the Appellate Body’s paralysis risked creating a system of economic relations based on power rather than rules.
The crippling of dispute settlement comes as the WTO also struggles in its other major role of opening markets.
The WTO club of 164 has not produced any international accord since abandoning “Doha Round” negotiations in 2015.
Trade-restrictive measures among the G20 group of largest economies are at historic highs, compounded by Trump’s “America First” agenda and the trade war with China.
Phil Hogan, the European Union’s new trade commissioner, said on Friday the WTO was no longer fit for purpose and in dire need of reforms going beyond just fixing the appeals mechanism.
For developed countries, in particular, the WTO’s rules must change to take account of state-controlled enterprises.
In 2017, Japan brought together the United States and the European Union in a joint bid to set new global rules on state subsidies and forced technology transfers.
The US is also pushing to limit the ability of WTO members to grant themselves developing status, which for example gives them longer to implement WTO agreements.
Such “developing countries” include Singapore and Israel, but China is the clear focus.
US Commerce Secretary Wilbur Ross told Reuters last week the United States wanted to end concessions given to then struggling economies that were no longer appropriate.
“We’ve been spoiling countries for a very, very long time, so naturally they’re pushing back as we try to change things,” he said.
The trouble with WTO reform is that changes require consensus to pass. That includes Chinese backing.
Beijing has published its own reform proposals with a string of grievances against US actions. Reform should resolve crucial issues threatening the WTO’s existence, while preserving the interests of developing countries.
Many observers believe the WTO faces a pivotal moment in mid-2020 when its trade ministers gather in a drive to push through a multinational deal — on cutting fishing subsidies.
“It’s not the WTO that will save the fish. It’s the fish that are going to save the WTO,” said one ambassador.